New ways to engage customers in co-designing your company's future - a weblog to complement the book, Outside Innovation, by Patty Seybold

Description

What is Outside Innovation?

It’s when customers lead the design of your business processes, products, services, and business models. It’s when customers roll up their sleeves to co-design their products and your business. It’s when customers attract other customers to build a vital customer-centric ecosystem around your products and services.
The good news is that customer-led innovation is one of the most predictably successful innovation processes.
The bad news is that many managers and executives don’t yet believe in it. Today, that’s their loss. Ultimately, it may be their downfall.

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Observations

LEAD USERS

Eric von Hippel coined the term "lead users" to describe a group of both customers and non-customers who are passionate about getting certain things accomplished. They may not know or care about the products or services you offer. But they do care about their project or need. Lead users have already explored innovative ways to get things done. They're usually willing to share their approaches with others.

LEAD CUSTOMERS

I use the term "lead customers" to describe the small percentage of your current customers who are truly innovative. These may not be your most vocal customers, your most profitable customers, or your largest customers. But they are the customers who care deeply about the way in which your products or services could help them achieve something they care about.

LEAD CUSTOMERS AND LEAD USERS

We’ve spent the last 25 years identifying, interviewing, selecting, and grouping customers together to participate in our Customer Scenario® Mapping sessions. Over the years, we’ve learned how to identify the people who will contribute the most to a customer co-design session. These are the same kinds of people you should be recruiting when you set out to harness customer-led innovation.

HOW DO YOU WIN IN INNOVATION?

You no longer win by having the smartest engineers and scientists; you win by having the smartest customers!

CUSTOMER CO-DESIGN

In more than 25 years of business strategy consulting, we’ve found that customer co-design is a woefully under-used capability.

It’s not safe! Fear of theft of assets, account information getting into the wrong hands, and identity theft.

B+

I can’t use it! Inability to pay everywhere I want to shop, using my payment type of choice.

D

You’re tracking me! Fear of “big brother” or any entity knowing where I am, what I’m doing, and making that information available to others without my knowledge or permission.

C

Lock-In! Once I start using a mobile e-wallet (assuming it’s safe to do so), how easily can I switch?

B

This week we take a deep dive into the entire ecosystem of partners required to support Apple Pay (or any mobile e-wallet). (See How Good Is Apple Pay's Ecosystem?) We ask the question: How well have the players in the Apple Pay ecosystem aligned to address these four customer-critical issues?

Apple Pay Is Optimized to Reduce Fraud and Support Banks. The Apple Pay ecosystem is optimized to address consumers’ concerns about credit card and identify theft as well as to eliminate some of the costs born by banks and other financial services providers in the ecosystem—the credit card issuers—by reducing the risk of fraud and the costs of fraud detection and prevention.

Optimizing around the risk of fraud and theft and catering to financial services providers is clearly a studied calculation that Apple’s design and management team made.

Merchants and Retailers Are Not the Design Center of the Apple Pay Ecosystem. If Apple had chosen instead to optimize around ubiquity of payment acceptance, they would have designed a solution that was easier for many more merchants to accept. Such a solution would need to make use of the current installed base of POS devices and provide more cost-effective and safer payment types. A merchant-optimized ecosystem (like MCX CurrentC, which was designed by retailers for retailers) would also enable each merchant to easily capture all the details of each consumer’s transactions and to easily integrate their own loyalty and rewards programs into the shopping and payment experience.

How Would the Apple Pay Ecosystem Look If It Were Truly a Customer Ecosystem?

7 Things the Apple Pay Ecosystem Needs to Change. What would be different if customer experience had really been the design center of the Apple Pay ecosystem? To become a customer ecosystem, Apple Pay should:

Work with both NFC (Near Field Communications) and non-NFC Point of Sale systems. Both kinds of transactions would require the same level of authentication (e.g., fingerprint and/or personal code).

Retain the tokenized approach to the payment transaction. Merchants do not need or want to see or to store consumers’ payment details.

Let consumers combine their brand-specific or retailer-specific loyalty cards with their payment transactions.

Give consumers control, on a brand-by-brand basis, over which retailers and brands are able to “know” their identity and associate their identity with their specific transactions.

Let consumers pay one another by transferring value securely from Apple Pay to individuals’ accounts (including people who do not use Apple Pay).

Notice that none of these customer-requirements would be that difficult for Apple and its ecosystem partners to address.

How the Apple Pay Ecosystem Is Likely to Evolve

Bear in mind that a healthy customer ecosystem will “automagically” begin to align to support and mitigate consumers’ top issues. In fact, you see signs of that happening already; now, only one week into actual operation in the U.S., a number of credit card companies, retailers, and banks are now hopping on board. That’s the first wave of response to consumer demand.

The second wave will be more difficult: Many merchants and retailers will continue to try to resist accepting Apple Pay until Apple supports non-credit and debit card transactions, taking the credit-card issuers (and their fees) out of every transaction. Yet Apple also solves a major problem for retailers: it will now be impossible for consumers’ credit card information to be stolen from their in-store point of sale systems and retail systems, because, with Apple Pay, retailers won’t ever have possession of consumers’ credit card information.

Retailers may be underestimating the importance of that peace of mind for their consumers. We predict that many consumers will buy and use Apple iPhones to pay at their stores specifically to increase their security and peace of mind.

Customers Will Reshape the Ecosystem to Meet Their Needs

We predict that customers voting with their feet and their tweets and their wallets will begin to reshape the Apple Pay ecosystem to better address their critical needs. It will be interesting to compare the Apple Pay ecosystem in one to two years to the Apple Pay system at its launch. Stay tuned.

How Good Is Apple Pay’s Ecosystem?How Well Does Apple Pay’s Ecosystem Meet Consumers’ and Partners’ Critical Needs? By Patricia B. Seybold, CEO and Sr. Consultant, October 31, 2014

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October 11, 2014

I had an eerie thought when I read about the massive data theft of customer information at JP Morgan Chase. Much was made about the fact that the theft did not include customers’ account information or credit card information. It was “only” their names and addresses—primarily those of customers who use the bank’s several online banking services. So what else did the thieves get? Everyone’s email addresses, I’m betting.

Then, in researching Apple Pay, I learned that Chase worked extremely closely and in great secrecy with Apple to develop the Apple Pay implementation of the credit card issuers’ smart card interoperability specification (EMV). Once your credit cards are loaded into Apple Pay on your iPhone, the account information disappears. It is replaced with a meaningless token (that can’t be reverse engineered back into your credit card number) combined with a single-use, transaction-specific cryptogram that is generated dynamically from the iPhone’s “secure element” (chip). There is now no way that thieves can steal credit card information from those phones or from the merchants’ Point of Sale systems. All the merchant sees are the last four digits of each customer’s credit card number to be used for analysis and reporting: e.g., how much did each unique customer spend with us last month?

But what if the bad guys already had the names, addresses, and email addresses (and maybe the last 4 digits) of everyone who had credit cards? And they could still hack into retailers’ systems to access their transaction data? Couldn’t they reverse-append the two data sets? So they wouldn’t recover people’s credit card information, but they would have their identities and their transaction histories. That’s probably worth something. Just wondering why the world’s largest credit card issuer’s online customers’ data was stolen a month before the launch of Apple Pay.

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October 02, 2014

PayPal will be spun out of eBay in 2015. That’s welcome news for those of us who follow the mobile e-wallet space. Despite its strong presence as a payment service provider, PayPal’s strategy has been hindered by its relationship with eBay. An independent PayPal will be able to move more quickly and to partner with players that eBay might not be comfortable with.

Jay Yarow at Business Insider provides useful context in his post, entitled “PayPal No Longer Needs eBay.” Here’s a useful chart showing the shift in their relationship, courtesy of Business Insider:

Note that almost half of eBay’s $16 billion in revenues now come from PayPal. Yet, PayPal transactions account for a declining percentage of eBay’s total transactions. Jay Yarow writes:

“So, why is PayPal going solo now? There's a bunch of reasons — pressure from Icahn, pressure to hire people, competition with Apple, and other startups in the payment space. Being a standalone company makes recruiting easier. It also focuses PayPal on payments.

This chart gives another reason — PayPal doesn't need eBay anymore.”

~ Jay Yarow, Business Insider

Pundits have been arguing about why Apple did not include PayPal as an Apple Pay preferred provider and whether that loss precipitated the break up between eBay and PayPal.

“Apple and PayPal started talking early on in Apple’s development of Apple Pay, as Apple was setting up partnerships with the card-issuing banks and card networks. Since PayPal’s a payments industry leader, it would have been shortsighted for Apple to not reach out to PayPal.

But while these talks were going on, PayPal went ahead and partnered with Samsung on the Galaxy S5 fingerprint scanner, a move that was reportedly forced onto PayPal by eBay CEO John Donahoe. PayPal’s now-former president David Marcus was purportedly categorically against the Samsung deal, knowing that it would jeopardize PayPal’s relationship with Apple. Donahoe won the day, however.

Apple was said to be absolutely furious that PayPal did the deal with Samsung, which led Apple to cut PayPal out of the Apple Pay process entirely. (One source said: “Apple kicked them out of the door.”) This dust up with Apple was a big reason that David Marcus ended up leaving PayPal for Facebook.

Bank Innovation has learned further information that PayPal wasn’t included in Apple Pay at the request of the card issuers and card networks. Sources within PayPal say that the card issuers and networks asked Apple Pay to not partner with PayPal — which Apple was happy to oblige…”

The CEO of the new PayPal will be Daniel Schulman, an executive recently recruited from American Express, who led that company’s mobile and online payment services strategy. John Donahoe will be stepping down and will be replaced as eBay’s CEO by Devin Wenig, who currently runs eBay’s Marketplace business.

July 24, 2014

As I mentioned last week, in my post, “Enterprise Customers Forged the Apple/IBM Ecosystem,” what tickled me about the exclusive worldwide partnership announced by IBM and Apple on 7/15/14 was that it was a great example of IBM’s running around in front of the customer parade. Enterprise customers—led by their CEOs, sales execs, and top-earning rainmakers—had already voted with their proverbial feet and adopted Apple iPads and iPhones as their devices of choice for getting work done on the go. That meant that their IT organizations had to adapt by accommodating Apple devices and apps, and they did. Soon, an entire ecosystem of third-party tools and services sprang up to help enterprise IT professionals manage iDevices, support them, develop apps for them, and deliver back-end enterprise data and applications securely to employees. Apple helped primarily by getting out of the way. That evolution began four years ago, shortly after the introduction of the iPad. Apple supported these activities with its iOS Developer Enterprise Program, which allowed corporations to develop apps for their own institutional use and not have to publish them in the Apple App Store.

Now, IBM has made a dramatic entrance into this ecosystem—with four offerings specifically targeted for their many enterprise accounts: IBM MobileFirst for iOS, IBM MobileFirst Platforms for iOS, AppleCare for Enterprise, and MobileFirst supply and management. The first two offerings are targeted for application developers and are iOS-specific instantiations of IBM’s MobileFirst offerings, which we described in IBM’s MobileFirst “Customer Cloud” Strategy, in late March. Essentially, this is a cloud-based development platform that is designed to help enterprise app developers develop, deploy, secure, and integrate corporate apps into their (IBM and other ERP) back-end systems and services. IBM has developed 100+ starter kit apps for over 10 vertical industries.

July 17, 2014

What I like about the new alliance between IBM and Apple for secure mobile apps is that it’s customer-driven. This is a great example of a customer ecosystem. IBM has historically been pretty good at recognizing and acknowledging their customers’ behaviors and either acquiring, or making strong alliances with, the suppliers that IBM customers favor. I often refer to this behavior as “running around in front of the customer parade.” A true customer ecosystem is not a marketing alliance that is ginned up by CEOs and marketing execs; it is a business network that is organically generated by customers’ behaviors as they go about their business of getting things done.

IBM’s business customers, starting with corporate CEOs and CIOs, gravitated to Apple iPads almost immediately. One of our clients—the CIO of a financial services firm—reported several years ago that he was pleasantly surprised that every single member of the CIO round table he participated in was taking notes on his/her iPad. In the past, corporate CIOs were often the last to adopt new technology. Most were slow to start using PCs in the 1980s, considering them “toys.” But iPads caught on quickly because CEOs, high-powered financial traders, and top salespeople—the folks who drive a company’s strategy and bring in the big bucks—began using iPads. That meant that CIOs quickly needed to ensure the security of the information and apps these top execs were using—both for work and for personal use.

So, the IBM/Apple alliance around mobile apps is a great victory for enterprise customers. They voted with their feet. Their suppliers (Apple and IBM) responded by forming an alliance to formalize the ecosystem that was already taking shape.

July 03, 2014

I live an hour and a half away from the nearest Apple Store, so I really value the ability to solve most problems that arise with my Apple products using Apple’s great phone support. Apple was the first company in my experience to offer immediate “call back” for product support. Many companies make you fill in long diagnostic forms online and then wait on hold for a tech support agent for over 10 minutes. Apple has a relatively painless pre-call process. As long as you are within the one-year warranty period, or if you have purchased the AppleCare support contract (three years for a Mac), you can quickly select the most convenient option without going through any additional menus:

Talk to Apple support now (provide your phone number and Apple support will call you)

Schedule a Call (at a particular time)

Call Apple Support later (provide your details, call at your convenience, the agent who takes your call will have your info ready)

Chat

Take it in for service (Apple Store or Authorized Service Provider)

I’m an impatient soul. I always request the “call me right now” option to at least debug the problem I’m having. What always amazes me is how fast Apple calls me back. It’s usually within 30 seconds! Barely time to refresh my coffee! The person on the phone is knowledgeable; they have the records about my computer up in front of them; and they can troubleshoot, diagnose, and, usually, fix the problem in a single call.

October 15, 2013

Here’s a great story about how Lauri Malkavaara, a journalist for the Helsinki Sanomat newspaper, tried to save his country’s mobile phone company. You can read Lauri’s entire article here. I’ll paraphrase and quote a few excerpts. [The emphasis is mine—highlighting the lovely way he describes the phone’s usability issues.]

On August 18, 2008, Lauri wrote a letter to Nokia providing his feedback about the design of Nokia E51 phone he had just been given to use by his employer.

Dear Nokia:

“… .Last week my second mobile phone broke and my employer bought me the third mobile phone that I have ever had in my life. I have wondered about it for a week now. At first I did not even know how to call with it without the manual, and I still do not understand very much of it.

The problem is that half a year ago a friend of mine at work showed me a device manufactured by Apple called the iPod Touch. I fell in love instantly… I ordered my own iPod touch, turned it on, and knew immediately how to use it. I have used the device now on a daily basis for over six months, and I have not even thought about any manuals…. It is no wonder that it is a huge success all over the world.

My new Nokia telephone model is called the E 51. Unfortunately the phone has not been designed so that just anybody could learn to use it easily…..”

September 13, 2013

Rumor has it that Amazon’s next mobile phone will be free—presumably subsidized by the increase in impulse downloads and purchases we do from our handy phones. On Tuesday, September 10, Apple announced its lower cost iPhone 5C. Technology analysts quickly reported that the low-cost phone is still too expensive in China.

But, guess what, phones and phone service are already getting really inexpensive in the developing world. I was listening to a 2010 TED Talk by Nathan Eagle on Mobile Crowdsourcing, in which he reported that, in Kenya, you can buy a phone, complete with a SIM card and airtime for $15. I highly recommend this TedTalk. Nathan points out that “in reality, the vast majority of web surfers live in the developing world. There’s more people using mobile phones, living in rural villages in developing countries than every western white collar worker on earth. The mobile phone is a developing world technology. It’s their technology. They represent the vast majority of the users and ultimately it has impacted their lives far greater than it has impacted our lives.”

Nathan Eagle points out something that I have observed in my semi-annual peregrinations to Uganda--that everyone in every rural village now has access to a mobile phone, and the applications they use include many that are more sophisticated than what we have—such as the ability to easily and securely pay for things and to transfer money from person to person.

So, as we watch the jockeying for position between Apple, Amazon, Google, and Microsoft in the mobile phone space over the coming months. Let’s remember: the REAL battle is for the pockets of the billions of people who live, work and play in the developing world.

February 07, 2013

There’s a topic that our Patty’s Pioneers group had been buzzing
about all last week: Why, when Amazon.com posted a 45% drop in net income
and a loss for 2012 of $39 million, did its stock go up? And why, when Apple
announced an increase of 18% in revenues to $55 billion for the quarter and
net income of $13 billion, did its stock go down?

September 28, 2012

I LOVE the Financial Times' Richard Waters' description of "Smartphone Hell"! To paraphrase: It's when
the maps come from Apple, the social network from MySpace, the app
store and browser comes from RIM, and the device design from the
original Amazon Kindle team!

Richard Waters’ column, “Apple weighs joining content scramble” offers the thesis that the battle for mobile mindshare and
walletshare in the smartphone world is about to move up the stack, from
physical device design to content ecosystems.

Will Content be the Next Ecosystem Land Grab? Richard
Waters describes the current mobile landscape as dominated by Apple and
Google’s warring ecosystems. He says the next battle will be over
content: “Anyone providing a key mobile service—such as maps, local
information, music or pictures—is potentially in the line of fire.”
Content providers will need to choose sides, aligning with the
“hardening” ecosystems of Google, Apple, Microsoft, or Amazon. Each of
these players (with the exception of Apple) currently has its own
content plays. Amazon has introduced its own social games and platform.
Microsoft has launched a video studio. Will Apple remain an innovator in
hardware, Richard asks, or will they also innovate in content?

Personal Data, Context & Intent Is the Next Ecosystem Battleground
My take: there’s another important layer on the path to content
integration and consumption. It’s the customer’s own data (personal
profile, e-wallet, contact lists, etc.), their current context (what am I
doing right now), and their intent (what do I want to do next?).
Richard points out that capturing users’ intent is the critical
rationale behind Apple’s insistence on using it own maps, rather than
Google’s. “Keeping access to a user’s personal data is even more
important: digital maps, for instance, are a place where users reveal
both their location and intent, as they search for local services.” So
the first ecosystem turf war (e.g., who can snatch up the most
customer-critical players and services) will be focused on this layer of
personal enablement: where am I, who do I want to reach, how will I
pay/what will I earn, what do I want to do?

This “Customer Context & Intent” Layer of Services SHOULD Be Cross-Platform
Each of these sparring ecosystems (Amazon, Apple, Facebook, Google,
Microsoft) wants to “own” as much of our context and intent as possible.
But what if we (the customers/end-users) don’t actually want that? Why
not insist instead on a cross-platform standard for maximum freedom and
interoperability?